As prices have risen faster than at any other point in four decades, lawmakers have sought explanations. In recent months, some Democrats have landed on a new culprit: price inflation.
The idea is that large companies have taken advantage of inflation to push prices up more than necessary. The White House has backed the claim, and congressional Democrats have introduced bills targeting price hikes. Proponents of the theory have a catchy term for it: “greed.”
For Democrats, it’s an easy explanation, as inflation is turning voters against President Biden. It lets Democrats divert blame from their pandemic emergency bill, the American Rescue Plan, which experts say helped raise prices. And it allows them to recast inflation as the debt of monopolistic corporations — something progressives have long argued against.
Not all progressives are on board. Jason Furman, an economist who served under Barack Obama, told me that greed was not a major factor in the rise in inflation. He described the focus on price gouging as a distraction from the real causes and solutions.
But the White House and other lawmakers are taking the theory seriously. So in today’s newsletter I want to look at the arguments for and against the idea that greed leads to higher prices.
the case for
Here’s how the greedy camp sees it: Inflation rose first because of other factors, such as Covid and economic stimulus bills. But companies raised prices more than was necessary to achieve higher profits. They knew they could get away with it because consumers no longer had a benchmark for what prices should be. And they didn’t have enough competition to keep prices down.
Proponents of the theory do not argue that companies have suddenly become much more greedy or monopolistic. For decades, corporate profits have grown faster than economic growth, and large parts of the economy, such as retail and finance, have become more concentrated in the hands of a few.
But inflation gives greedy, monopolistic companies a chance to profit, said Lindsay Owens, the executive director of the left-wing Groundwork Collaborative. Making a profit “is an accelerator of price increases,” she told me. “It’s not the primary cause.”
Owens pointed to what companies have been saying in earnings calls over the past year. A Tyson Foods executive claimed that beef price hikes not only covered inflation but “more than made up for” higher costs. Visa’s CEO said, “Historically, inflation has been positive for us.” Owens’ organization compiled a list of similar comments from other companies.
Representatives from Tyson and Visa said Groundwork mischaracterized the executives’ comments and took them out of context.
At the very least, many companies have not taken a major blow from inflation. Profit margins of more than 2,000 publicly traded companies last year “rise well above the prepandemic average,” a Times analysis found.
the case against
You don’t need price inflation to explain inflation, and there are other, more widely accepted explanations, Furman said.
Covid has disrupted supply chains worldwide. The Russian invasion of Ukraine caused a new wave of disruptions, especially in the areas of food and energy. The stimulus bills left people with a lot of extra money, and many Americans spent it. This created too much demand for too little supply, which caused prices to rise.
More recent developments have also weakened the greed theory. Inflation has remained high at 8.6 percent over the past year, according to a federal report released last week. But the stock market has plummeted; the S&P 500 was more than 20 percent below its January peak after falling sharply yesterday. And earnings calls have disappointed investors so far this year. If the pursuit of profit caused more inflation, you wouldn’t expect it.
Economic indicators provide a test for the future: If earnings fall while inflation remains high, gush is unlikely to be a major driver of rising prices.
The greed theory also relies on large firms using their outsized market power to raise prices more than they should be possible in a truly competitive economy. But that hasn’t happened in some concentrated markets: hospitals are highly consolidated, but health care prices have risen more slowly than headline inflation over the past year.
Healthcare prices are historically unusual; for most of the past few decades they have risen faster than inflation. But their recent relative slowdown suggests that if greed is real, it’s not a major factor in every part of the economy.
it comes down to
I’ve read the evidence: price gouging could lead to higher prices in some places, but it’s not universal.
It’s also not clear what the progressives’ argument boils down to. The anti-gouging laws introduced in Congress have been criticized as impractical or even counterproductive. More antitrust enforcement — to break up or prevent the creation of monopolistic companies — could help, but only in the longer term. If greed explains some of our current problems, it offers no clear way out.
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6. Hearings
The latest EGOT
This weekend, when Jennifer Hudson received a Tony for the musical “A Strange Loop,” she became one of 17 people to have won an Emmy, a Grammy, an Oscar and a Tony. Or, as it is known, an EGOT.
Actor Philip Michael Thomas, who played Detective Rico Tubbs in “Miami Vice,” first used the term in the 1980s and it became mainstream after “30 Rock” popularized it in 2009.
Whoopi Goldberg: The actor achieved EGOT status in 2002 after winning a Tony for the musical “Thoroughly Modern Millie” and an Emmy for hosting “Beyond Tara: The Extraordinary Life of Hattie McDaniel”.
John Legend, Andrew Lloyd Webber and Tim Rice: The performers all joined the club in 2018 thanks to NBC’s “Jesus Christ Superstar Live in Concert”.
Who’s next? Multiple celebrities are just one prize away. Among them: Lin-Manuel Miranda, who is missing an Oscar; Cher, who has everything but a Tony; Elton John, who doesn’t have an Emmy; and Viola Davis, who does not have a Grammy.